Boeing misses out on an increase in defense spending

Top of the News: You might think that Boeing is the biggest loser among Seattle-area stocks this morning. Actually, Nordstrom is doing far worse on a percentage basis. This is probably pre-earnings jitters and marginal profit-taking. But the market hasn’t been helped by a George Soros interview in which the financier says (rightly, I believe) that the rally is unsustainable. There’s also a wooziness-inducing story in the New York Times about the “mission creep” of the FDIC, essentially insuring most of the debt of the Geithner bailout program.

Nevertheless, the big Pentagon rebalancing unveiled yesterday by Defense Secretary Bob Gates hasn’t helped Boeing shares. Boeing’s defense unit, which employs 9,000 in the area and represents $32 billion in sales for the aerospace giant, gets big whacks in the new budget. It is important to make one point: political hysteria notwithstanding, the Obama administration is actually proposing an increase in overall defense spending. U.S. spending on a fiscal-year basis in recent years has approached and even passed that of the Cold War. Gates and Obama plan to spend more in FY 2010 than President Bush did in his last budget. It’s just that the funding isn’t breaking in Boeing’s direction.

Of course Congress will be one of the deciders, and Boeing can muster an impressive bi-partisan set of advocates from several states. Wired has an interesting take on the Gates strategy: that his ‘reboot’ is so sweeping precisely to overcome the normal, and often, effective resistance of members of Congress when the Pentagon gingerly tries to snip one or two projects. Anyway, the Gates proposals are only the beginning of the struggle.

If they come true, it could mean yet more losses of well-paying jobs in the region. But it will also raise the question of whether Boeing stayed in a Cold War mindset, too wedded to projects that didn’t address 21st century threats or a procurement model that the new administration finds inefficient and unsustainable. And we haven’t even gotten to the issue of whether the nation can long continue spending so much on arms when it’s in debt to the world and facing a looming reset of many other aspects of national life, financial and energy chief among them.

The Back Story: In addition to the shocking news about the FDIC insuring the debt for private investors that buy “toxic assets,” did you know that $400 million in bailout money is going to the credit-rating agencies that slept through the gathering crisis? Me, neither. But the Connecticut attorney general is asking why — and also why the smaller competitors of Moody’s, Fitch and Standard & Poor’s are not getting any assistance, according to the Los Angeles Times. Many taxpayers think these big three should be getting something different from the feds, such as handcuffed perp walks.